20180529-广发证券_香港_-China_Building_Materials_Sector__Quartz_–_strong_growth_meets_accelerating_localization__5页_634kb

China Building Materials Sector Summary

Core Content

The document provides an in-depth analysis of the China quartz glass sector, focusing on its growth potential, market applications, and localization trends. It highlights the semiconductor industry as the main downstream application for quartz glass, emphasizing its importance in wafer processing and chip manufacturing.

---

Key Applications and Market Size

Quartz glass is used in various industries due to its high purity, solid temperature resistance, low thermal expansion, and chemical stability. The main applications include:

• Electric light source: Quartz tubes (market size: Rmb12bn, origin: East China Sea)
• Optical communication: Fiber tubes (Rmb35bn, origin: Germany), auxiliary quartz glass (Rmb2.5bn, origin: China)
• Solar: Quartz crucibles (Rmb10bn, origin: China), quartz devices (Rmb5bn, origin: China, Japan, South Korea, Taiwan)
• Semiconductor:
  • Quartz base materials (crucible included): Rmb40bn (origin: U.S, Germany, Japan)
  • Photomask substrate: Rmb45bn (origin: Japan, U.S)
  • Semiconductor quartz devices: Rmb60bn (origin: U.S, Germany, Japan, South Korea, Taiwan, China)
• Optics:
  • Infrared optics: Rmb2bn (origin: U.S, Germany, Japan, China)
  • Ultraviolet optics: Rmb20bn (origin: Germany, Japan, China)

Total estimated global market size for quartz glass: Rmb232bn

---

Main Downstream Application: Semiconductor Industry

The semiconductor industry is the largest application of quartz glass, with over 60% of the global market in 2014. Key products used in the semiconductor sector include:

• Semiconductor quartz crucibles: Rmb4bn
• Front-end processing quartz devices: Rmb6bn
• Photomask substrates: Rmb4.5bn

The global semiconductor quartz market is expected to grow significantly, with estimates suggesting that the market size exceeded US$2bn in 2017, and the semiconductor quartz device market was around US$1.3bn in the same year.

---

Value Chain Overview

The quartz glass value chain in China is divided into:

• Upstream: Quartz glass material manufacturers (e.g., Feilihua (300395 CH), Pacific Quartz (603688 CH))
• Downstream: Quartz processors (e.g., Hangzhou Dahe, Kaide Quartz)

Quartz processors purchase raw materials and produce various semiconductor quartz devices, which are then sold to semiconductor equipment manufacturers and chip manufacturers. Some processors may also sell directly to chip manufacturers.

---

Growth Drivers

• Global semiconductor growth cycle: Drives capex peaks and strong demand for quartz materials.
• Localization trend: The Chinese semiconductor industry is growing rapidly, increasing the demand for domestic quartz materials.
• Technology advancement: Domestic players are pushing product innovation and breaking through certification barriers, which are critical for entering the high-end market.

---

Investment Outlook

• Sector rating: Positive (expected to outperform the Hong Kong Hang Seng Index by more than 10% over 12 months)
• Investment recommendation: Bullish on the China quartz sector, with leading domestic names showing solid growth potential.
• Reasons for optimism:
  • Increasing domestic demand in the semiconductor industry
  • High growth in semiconductor quartz materials (CAGR > 20% by 2020)
  • Strong sales growth for companies like Pacific Quartz and Feilihua

---

Risks

• Disappointment in overseas semiconductor market expansion
• Rising raw material prices
• Exchange rate fluctuations
• Limited new capacity additions
• Trade policy uncertainties

---

Analyst Certification

The analysts certifying the report confirm that:

1. All views expressed reflect their personal opinions.
2. No remuneration was directly or indirectly linked to the recommendations in the report.

---

Disclosure of Interests

• GF Securities (Hong Kong) and its affiliates do not hold shares in the companies mentioned.
• No investment banking relationships exist with the companies mentioned in the past 12 months.
• Analysts and their associates have no financial interests in the securities mentioned.

---

Disclaimer

This report is for informational purposes only and not an investment recommendation. It does not constitute an offer to buy or sell any securities. No liability is accepted for any loss arising from the use of the report, unless excluded by law.

Investments involve risks, and security prices may fluctuate, leading to variable returns. Past performance does not guarantee future results. Professional advice should be sought before making investment decisions.

---

Copyright

© GF Securities (Hong Kong) Brokerage Limited.
No part of this document may be copied, reproduced, or re-disseminated without the prior written consent of GF Securities (Hong Kong) Brokerage Limited.